Weekly Outlook: Sep 12 - 16; BoE Policy Meeting on Radar

The week ahead has a very busy economic calendar with many news that is expected to affect the market. The Bank of England will have its policy meeting on Thursday after policymakers voted unanimously to cut the main bank rate for the first time in over seven years in August. ECB President Mario Draghi has a speech on Tuesday while U.S., U.K. and Eurozone’s inflation rates are coming out during the week. Many other significant indicators and speeches are scheduled during the week.

[B]Monday[/B]’s calendar is relatively light in terms of economic releases. In the absence of any major indicators from Euro Area, attention in the European morning will be in the U.K. CB leading indicator index. The U.S. department of treasury will release the average yields on the 3-month and 6-month bills as well as on the 3-year notes. Later in the U.S. session, the FOMC member Brainard will give a speech. A while after, attention turns to Australia, where the RBA Assistant Governor Kent has a speech. Overnight, the National Australia Bank’s business conditions for August will be released.

On [B]Tuesday[/B] we have significant news coming out from Euro area and U.K. Early in the morning the German wholesale price index and the consumer price index for August will be released. The consumer prices are expected to remain flat compared with the month before versus an increase of 0.1% in July.
A while later, the center of attention turns to U.K. The National Statistics will publish a report with the headline the inflation rate for August. Following Brexit decision and an annual battle with inflation, the inflation rate is forecasted to rise 0.7% year-over-year in August from 0.6% in July. If the forecast comes true, will be an almost two-year record high for the indicator, however, will be below BoE target of 2%. The producer and the retail price indexes are also coming out.

At 9:00 GMT, we shift to Euro Area’s news. [B]ECB President Mario Draghi[/B] has a scheduled speech. Meanwhile, Eurozone’s employment change for the second quarter and the ZEW Survey for both Germany and Eurozone will be released. Economic sentiment in the 19-nation union is expected to rise up to 6.7 in September from 4.6 before, while in Germany is predicted to rise at 2.5 from 0.5 before. On the other hand, the current situation looks to have less optimism, as the indicator is forecasted to decrease at 56.0 from 57.6 before according to ZEW survey.

In U.S., the NFIB business optimism index and the month budget statement both for August are expected to be published. Overnight, New Zealand’s current account for Q2 and Australia’s Westpac consumer confidence for September will be released, as well as Japan’s industrial production and capacity utilization for July.

[B]Wednesday[/B] is an equally busy day. In the [B]UK, the employment report [/B]will be closely eyed. The ILO unemployment rate for the three months to July is expected to remain unchanged 4.9% while the claimant count change is forecasted to increase by 1.6K in August versus a drop of 8.6K in July. The average earning including bonus are predicted to increase 2.1% the three months to July, a slower pace than the previous figure of a 2.4% increase. Half an hour later, Eurozone’s industrial production indicator for July will reveal a drop of 0.5% yoy compared with an increase of 0.4% in June, according to market consensus.

In U.S., the weekly MBA mortgage applications will be released and thereafter, the market participants are expecting the import and export price indexes for August to be announced. Later in the second half of the day, New Zealand’s business PMI for August will be released but the highlight of the day for the country is the GDP growth for the second quarter. During the night, Australia will publish its consumer inflation expectations for the next twelve months and half an hour later, the employment report will be published. No changes are expected to August’s unemployment rate and the participation rate while the employed people are expected to increase by 15.0K lower from an increase of 26.2K the previous month.

[B]Thursday[/B] is a big day for the British Pound. Several indicators and the Bank of England policy meeting will determine its direction. Early in the morning, the U.K. retail sales for August are expected to reveal a drop of 0.5% compared to July’s increase of 1.4%. The retail sales ex-fuel are expected to have a similar drop of 0.8% versus 1.5% before. Therefore, traders’ attention turns for a while in Euro area before it comes back to U.K. again. Eurozone’s trade balance for July is coming out and will be followed by consumer price index. The consumer prices are expected to keep the same pace of growth of 0.2% annually in August.

The [B]Bank of England monetary policy committee is expected to vote on the central bank’s interest rates[/B]. Following August’s rate cut to the record low of 0.25% after over seven years they were keeping the main bank rate at 0.5% the market expects the policymakers to vote unanimously to keep the rate unchanged. No changes are expected also for the asset purchase program of £435B.

Going to U.S., the retail sales are expected to come out. The market forecast wants the retail sales to remained flat in August as well as the same month before, while the retail sales ex-autos are forecasted to rise 0.3% versus a drop of 0.3% the previous month. The producer price index for August and the weekly jobless claims are also scheduled for release. The business inventories are expected to rise 0.1% in July from 0.2% before, while the capacity utilization is predicted to slow down slightly to 75.7% from 75.9% before.

[B]Friday[/B], the highlight of the day is the [B]U.S. inflation report for August[/B]. The annual inflation report is expected to rise 1.0% from 0.8% in July. A step closer to Fed’s inflation target is a good signal for the central bank to tighten its monetary policy later in the year. Traders will also keep a tab for the Michigan flash consumer sentiment index for September which is expected to pick up at 91.0 from 89.8 before. No major speeches and releases are scheduled from Euro area and U.K.

[B]EUR/USD – Technical Outlook[/B]
The EUR/USD pair rose 0.7% during last week and price action suggests that investors are still worried about more ECB easing. After the pullback at the 1.1120 support level which coincides with the 50-weekly SMA the pair challenged the 1.1330 resistance level.

From a technical point of view, the common currency created a green week after two consecutive negative candles. Currently, the pair is moving below the 100-weekly SMA which seems to be a strong obstacle for the bulls. Furthermore, on the daily chart, the price is trading above the three SMA’s (50-SMA, 100-SMA, 200-SMA) which are near the significant support area at 1.1180 – 1.1200 and the technical indicators are following a positive path. Going to a lower timeframe, the last hours the main currency is recording positive candles and met the 1.1250 barrier. A pullback near the latter level is possible and then the price will retest the 1.1200 psychological level. The MACD oscillator is falling but is still moving above the zero line. Also, the RSI indicator is moving near its mid-level.

[B]GBP/USD – Technical Outlook[/B]
The most important currency to focus this week will be the British pound. Out of the important monetary policy meeting of the Bank of England, the inflation, employment and retail sales reports will be released before the rate decision. Looking ahead, our expectations for positive economic reports means that sterling will outperform other currencies.

Following the strong rebound on the 1.3450 resistance level, the pair created three red weeks in a row instead of the previous week where a doji has been observed. Currently, the GBP/USD pair is moving below the 1.3280 resistance level and the 50-SMA on the 4-hour chart. A break above the aforementioned obstacles will open the doors towards the 1.3375 resistance level. On the other hand, a penetration of the ascending trend line will expose the price to 1.3170 support level. In addition, technical indicators are following a negative path while the RSI indicator is sloping upwards. The MACD oscillator is moving below both its trigger and zero lines.